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A High Yield Play on Lower Corn Yields

August 02, 2012 – Comments (0) | RELATED TICKERS: ADM , MOS , POT

The U.S. cut its corn-harvest estimate 12 percent and said inventories next year will be smaller than fore cast in June as the worst Midwest drought since 1988 erodes prospects for a record crop. With the increase in corn prices, companies using corn will be hit with higher expenses while those increasing corn yields will prosper. The rise in corn prices will affect food prices as corn is a primary food source for livestock. Investors must be wary of how the increase in corn prices may affect their portfolios.

Crop conditions as of July were the worst for that date since the drought of 1988, government data show. Tighter supplies than expected may boost costs for ethanol makers including Archer Daniels Midland Co. (ADM) and several meat producers. Investors are lightening up on their protein diets, unloading shares of Sanderson Farms Inc. (SAFM), Pilgrim’s Pride Corp. (PPC) and Tyson Foods Inc. (TSN) over the past month amid a swift rise in futures prices for feed grains.

Fertilizer stocks are moving higher after the government reported greater than expected damage to corn crops. Shares of fertilizer makers CF Industries (CF), Potash (POT) and Mosaic (MOS) have already made a significant move up in price. In addition, one fertilizer stock to watch was an IPO in November 2011 that pays a high dividend yield.

Read about the high yield play.